1. Field
Exemplary embodiments relate generally to portfolio management, and more particularly to value added attribution.
2. Related Art
Portfolio management professions are tasked with the challenges of creating and maintaining portfolios of assets whose returns justify their performance. After the period for performance, portfolio performance may be measured ex post facto as against benchmark measures, to determine the relative rate of return. Performance Attribution refers to the techniques employed by performance analysts to comprehend why and how a portfolio's performance has differed from benchmarks. The term for the difference between the portfolio return and the benchmark return is referred to as the active return, meaning the part of a portfolio's performance arising from the active management of the portfolio.
Differing types of performance attribution provide differing ways of providing and understanding an active return. Under one paradigm for performance attribution, there are two or three different kinds of decisions that the portfolio manager can make in an attempt to produce added value. The first measure may be asset allocation, which refers to the relative ability to allocate weights to differing groups of assets. A second measure may be the stock (or asset) selection, which may refer to the value added by decisions within each sector of the portfolio. Yet a third measure is interaction, which may refer to the value added that is not attributable solely to the asset allocation and stock selection decisions. These three attribution terms, namely asset allocation, stock selection, and interaction, may be deemed to sum exactly to the active return provided.
Unfortunately, while known methods of assessing portfolio management generally account for performance generally, they do not account for the ability of the strategy to dynamically tilt in the direction of better performing assets.